3. Introduction
High unemployment among
youth Companies facing difficulty to
recruit skilled workers
Paradoxical situation in India
Skill Training can provide solutions, BUT:
Only 2.3 percent of India’s workforce have avail formal skill training
o The percentage in industrialized countries is between 60% & 96%
Between 2017 and 2022, 3.6 mn individuals are expected to join
AP’s workforce.
o Of this, 97% is projected to be completely unskilled or only
partially skilled.
2% per annum can
be added to India’s
per capita GDP
growth over next 20
years from
demographic
dividends
4. More about the current state
2.4
1.4
1
0.1
0.4
3.1
2.3
1
-2.1
Skilled Partially skilled Unskilled
AP Skills deficit by proficiency level, 2017-22 projections
Demand (million) Supply (million) Deficit (million)
Source: NSDC Skill gap report 2012
By 2022, 58% of state’s
Labour Force would be
surplous and totally
unskilled
5. Calculations
Many calculations in this paper are based on data from the Employment Unemployment
Survey (EUS) 2016
EUS was carried out by Labour Bureau, Ministry of Labour and Employment
More about EUS data
1. The survey has been conducted in all States/UTs and covers all districts
2. It covers a sample of more than 1.5 lakh households and inquires 7.8 lakh
members from both rural and urban areas
3. It collects details on the several parameters, including:
a. Employment -unemployment situation in India, including youth and different social
groups
b. Education, Skill Development & Labour Force situation
7. Description of Vocational Training
Vocational training (VT) provides job-specific technical training, with hands-
on instruction
VT is provided by schemes of Directorate General of Training (DGT)
Craftsmen Training Scheme (CTS) courses
are run in ITIs for 6 months to 4 years
Skill Development Initiative Scheme
(SDIS) courses are provided by VTPs for 4
weeks to 6 months
Analysis considers that VT courses are availed for an average of 1 year (observation from EUS data)
8. Cost categories:
The total cost of VT is found to be Rs. 43,818 per year per individual
Costs involved in implementing Vocational Training
Cost to government in
running the scheme
Tuition fees paid by
individuals
Opportunity cost
incurred by individuals
in availing training
9. Benefits from vocational training
Benefit shown as
Net Present value (NPV) of lifetime benefits is
calculated
Benefit from VT is estimated to be
Rs. 7.2 lakh for every individual
Total income differential due
to VT from age 18 to 59
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58
Average annual earnings across the life cycle of
an individual in AP
No VT, adjusted for income growth and ue
VT, adjusted for income growth and ue
10. Total costs, total benefits and cost-benefit ratio
Discount rate
3% 5% 8%
Benefit
(1000 INR)
1,252.8 716.4 326.2
Cost (1000
INR)
43.8 43.8 43.8
BCR 28.6 16.3 7.4
11. Sensitivity analysis
Higher BCR can be realized if VT is undertaken at an early age
Sensitivity analysis is done to further understand how the BCR changes with change in the age of
the individual
28.6
16.3
7.4
23.5
15.4
8.6
12
9.1
6.3
3% 5% 8%
BCR at different ages at different discount rates
18 25 35
13. Description of Apprenticeship Training
Apprenticeship training involves programs that combine vocational education with
work-based learning
Trainings are subject to externally imposed training standards, particularly for their workplace
component
The intervention was a result of Apprentices Act (1961), amended again in 2014
Apprentices are paid stipends every month from the employers with a part of it
reimbursed by the government
Different categories of apprenticeship have different rates of stipend per month (set by govt)
14. Costs involved in Apprenticeship program
Cost categories
Total cost for one apprenticeship is estimated to be Rs. 1.86 lakh
Cost to individual
Foregone earnings as
unskilled worker
Cost to employer
Apprentice salaries,
supervision, training
and administrative
costs
Cost to government
Running the scheme
& reimbursing part of
costs incurred by the
employers
15. Benefits from apprenticeship program
Benefits shown as:
Net Present value (NPV) of lifetime
benefits is calculated at different discount
rates
At 5% NPV, total benefit from each
apprenticeship is Rs. 13.4 lakh
Benefit to the trained individual
in the form of incremental mean
earnings till retirement
-
50,000
100,000
150,000
200,000
250,000
18 23 28 33 38 43 48 53 58
Wagepremium
Working age of an individual
Benefit (increase in wages) to the individual
16. Total costs, total benefits and cost-benefit ratio
Discount rate
3% 5% 8%
Benefit (lakh
INR)
20.4 13.38 8.06
Cost (lakh INR) 1.86 1.86 1.86
BCR 11.0 7.2 4.3
18. Description of SME support
Support to SMEs is provided through bank credits
Estimate of unmet credit demand for MSMEs in 2017: Rs.25 trillion
Credit to MSMEs stood at
Rs.16 trillion in 2017.
It is expected to grow at 12-14
percent over the next 5 years
AP targets to create 200 MSME parks by 2023 with an investment of Rs.450 billion
AP’s investment on all MSME units in 2017 stood at just Rs.120 billion
Increase in credit to SMEs higher productionNot a direct
intervention
19. Costs involved in supporting SMEs
Cost categories
The cost of credit equals Rs.16 for every Rs.100 lent to SMEs
Cost of borrowing
for banks
Default rate
Administrative
costs
20. Benefits from supporting SMEs
Benefit calculation is based on a study by Banerjee and Duflo (2012)
The study estimates profit by finding:
The profit before interest payment was hence found to be Rs.89 for every
Rs.100 of bank credit
Elasticity of sales
against bank credit
Elasticity of sales
against cost of
borrowing
21. Total costs, total benefits and cost-benefit ratio
BCR of the intervention was found to be 5.6
Benefit from Rs.100
bank credit (INR)
Cost of Rs.100
bank credit (INR)
BCR
89 16 5.6
22. Conclusion
Two direct interventions on skill training and one intervention on
MSME is examined in this paper
16.3
7.2
5.6
Vocational Training Apprenticeship Support to SMEs
B-C ratio at 5% discount
Between VT and Apprenticeship
(interventions on skill training),
VT yields a greater BCR
Giving credit support to SMEs
(an indirect interventions) yields
the lowest BCR
Hinweis der Redaktion
Paradoxical situation in India
Tailor-made short courses have higher unit costs– studies suggest
- Literature emphasizes on the importance of getting the institutional arrangements right for effective VT
- VT has lower wage returns than traditional education programs
Sensitivity analysis is done to further understand how the BCR changes with change in the age of the individual and the length of the intervention
Costs are calculated based on the assumption that 60% of individuals who enroll finish the program
Costs to individuals: 0.16 lakh
Costs to employers: 1.5 lakhs
Costs to government: 0.2
ILO study in India (2014) suggests that benefits to industries is greater than costs incurred
- Studied 7 firms across industries in different parts of India
Industries recovered the costs incurred within the apprenticeship period or one year post the apprenticeship if the individual is retained
